USPIRG and CDD Call on OCC to Not Issue FinTech National Charter

Re: Exploring Special Purpose National Bank Charters for Fintech Companies

Dear Comptroller Curry:

An ongoing and increasingly challenging issue confronting citizens and consumers is the new threats to their privacy and their ability to control how personal and non- personal data about their online and offline behavior are collected and used by online financial services companies. The use of personal data by Fintech companies is pervasive and touches every aspect of their business operation, including marketing, customer loyalty management, pricing, fraud prevention, and underwriting. Fintech companies use many new on- and offline data sources, either directly collecting data from consumers or relying on third parties for Big Data analytics to classify consumers and to make predictions about them. Assigning individuals to socially constructed classifications and then making inferences about them based on group profiles is likely to have consequences that are not well understood and may further increase social inequities. Consumers’ privacy is increasingly undermined and no adequate protections are in place. The OCC must not allow an expansion of these practices via a federal charter that does not provide for adequate privacy safeguards.

The OCC must proactively investigate unfair marketing practices and not grant national licenses without affirmative protections. Fintech companies are using Facebook, Instagram, and other digital behavioral data that combine data and interactive experiences to influence consumers and their social networks. Sophisticated data-processing capabilities allow for more precise micro-targeting, the creation of comprehensive profiles, and the ability to act instantly on the insights gained from consumer behaviors. Targeted and highly personalized marketing offers can be intrusive and foster consumer behaviors that are not in the best interest of the individual. Behavioral science shows that consumers are susceptible to ‘nudges’ which raises concerns about the risk of financial institutions taking advantage of the behavioral biases and limitations of consumers. Increasing personalization which Big Data makes possible, could also reduce the comparability of products, making it harder for consumers to compare one offer with another which could have an impact on market competition. Similarly, lack of transparency around the processing of data and automated algorithms may lead to increasing information asymmetries between the financial institution and the individual and thus consumers are left with less awareness and a lack of understanding and control over important financial decisions. These practices happen behind the scenes and can only be addressed by a vigilant regulator. The OCC should not allow fintech companies to operate a national license without properly addressing these data practices.

The OCC must also not allow nonbank lenders or partner depository institutions to engage in unfair and discriminatory lending practices. The use of ‘alternative data’ sources can be the cause of bias or contain errors and may lead to consumer harm or unfairness. While alternative credit scoring can be a boon for the underbanked, there need to be standards and safeguards to ensure that any new data are not biased and that their use may not lead to unintended consequences. While industry has argued that increased automation will help expand access to credit and lower costs overall, credit models that are more “accurate” may lead to a more stratified society, as it will leave those at the bottom potentially excluded from credit forever. Models that judge individuals against group profiles based on past data inevitably incorporate elements of past inequality and discrimination. Communities of color are thus most vulnerable. Unless additional policies are put in place to address these consequences, inequality is likely to become more entrenched the more we rely on models for risk evaluations. Fintech platforms must comply fully with the requirements of the Fair Credit Reporting Act and Equal Credit Opportunity Act.